On January 1, 2021 Blue Company sold equipment with an estimated remaining useful life of 12 years to Red Company. At the same time, Blue leased back the equipment for 5 years.

The equipment will revert to Red at the end of the lease term, however the residual value is unguaranteed and was not estimated. The equipment that had a carrying amount of 12,000,000 was sold at only 15,000,000 although its fair value was 16,000,000. Lease payments to be made by blue in advance starting January 1, 2021 is 2,000,000 per year.

The implicit rate is 12% with a PV of an ordinary and annuity due of 3.60 and 4.04, respectively.

What is the cost of the right of use asset?

Answer rating: 100% (QA)

Based on the given information the cost of the rightofuse asset in this sce... View the full answer